1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Period ended March 28, 1998. OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ______ to ______. Commission file number 0-600 ROADWAY EXPRESS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 34-0492670 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No) 1077 Gorge Boulevard Akron, OH 44310 - ------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (330) 384-1717 ------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No . The number of shares of common stock ($.01 par value) outstanding as of April 25, 1998 was 20,539,717. 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ROADWAY EXPRESS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 28, 1998 December 31, 1997 --------------------------------- (in thousands) Assets Current assets: Cash and cash equivalents $ 73,853 $ 58,505 Accounts receivable, net 278,718 288,050 Other current assets 19,331 16,357 ------------------------------ Total current assets 371,902 362,912 Carrier operating property at cost 1,360,761 1,366,569 Allowance for depreciation 1,004,532 1,008,485 ------------------------------ Net carrier operating property 356,229 358,084 Goodwill, net 8,726 8,747 Deferred income taxes 15,021 14,243 ------------------------------ Total assets $ 751,878 $ 743,986 =============================== Liabilities and shareholders' equity Current liabilities Accounts payable $ 143,653 $ 165,536 Salaries and wages payable 112,381 103,609 Other current liabilities 70,419 53,657 ------------------------------ Total current liabilities 326,453 322,802 Long-term liabilities Casualty claims payable 52,649 55,267 Future equipment repairs 18,810 19,773 Accrued pension and retiree medical 98,762 96,708 ------------------------------ Total long-term liabilities 170,221 171,748 Shareholders' equity Common Stock - $.01 par value Authorized - 100,000,000 shares Issued - 20,556,714 shares 206 206 Other shareholders' equity 254,998 249,230 ------------------------------ Total shareholders' equity 255,204 249,436 ------------------------------ Total liabilities and equity $ 751,878 $ 743,986 =============================== Note: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 ROADWAY EXPRESS, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) Twelve Weeks Ended (First Quarter) March 28, 1998 March 29, 1997 ---------------------------------------- (in thousands, except per share data) Revenue $ 621,663 $ 590,675 Operating expenses: Salaries, wages and benefits 400,483 382,281 Operating supplies and expenses 110,202 101,947 Purchased transportation 57,037 48,218 Operating taxes and licenses 19,353 18,844 Insurance and claims expense 14,978 16,899 Provision for depreciation 9,895 12,628 Net (gain) on disposal of operating property (1,109) (584) ---------------------------- Total operating expenses 610,839 580,233 ---------------------------- Operating income 10,824 10,442 Other income (expense), net 702 (221) ---------------------------- Income before income taxes 11,526 10,221 Provision for income taxes 4,917 4,699 ============================ Net income 6,609 5,522 ============================ Net income per share - basic $ 0.33 $ 0.27 Net income per share - diluted $ 0.32 $ 0.27 Average shares outstanding - basic 20,108 20,232 Average shares outstanding - diluted 20,337 20,548 Dividends declared per share $ 0.05 $ 0.05 See notes to condensed consolidated financial statements. 2 4 ROADWAY EXPRESS, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) Twelve Weeks Ended (First Quarter) March 28, 1998 March 29, 1997 ------------------------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,609 $ 5,522 Depreciation and amortization 9,917 12,646 Other operating adjustments 2,304 (10,674) --------------------------- Net cash provided by operating activities 18,830 7,494 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of carrier operating property (10,126) (6,222) Sales of carrier operating property 3,194 2,716 --------------------------- Net cash used by investing activities (6,932) (3,506) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (1,015) (1,026) Purchase (issuance) of treasury shares 4,465 - --------------------------- Net cash provided (used) from financing activities 3,450 (1,026) Net increase in cash and cash equivalents 15,348 2,962 Cash and cash equivalents at beginning of period 58,505 36,243 --------------------------- Cash and cash equivalents at end of period $ 73,853 $ 39,205 =========================== See notes to condensed consolidated financial statements. 3 5 Roadway Express, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements Note A--Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the 12 weeks ended March 28, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the registrant's annual report on Form 10-K for the year ended December 31, 1997. Note B--Accounting Period The registrant operates on a 13 four-week period calendar with 12 weeks in each of the first three quarters and 16 weeks in the fourth quarter. Note C--Provision for Income Taxes Taxes provided exceed the U.S. statutory rate primarily due to non-deductible operating costs, and foreign and state taxes. Twelve Weeks Ended (First Quarter) March 28, 1998 March 29, 1997 ---------------------------------------------------- (in thousands) U.S. Federal $ 4,633 $ 3,216 U.S. State 511 625 Foreign (227) 858 ---------------------------------------------------- Total $ 4,917 $ 4,699 ==================================================== Note D--Earnings per Share The following table sets forth the computation of basic and diluted earnings per share: Twelve Weeks Ended (First Quarter) March 28, 1998 March 29, 1997 ----------------------------------------------------- (in thousands, except per share data) Net income $ 6,609 $ 5,522 ===================================================== Weighted-average shares for basic earnings per share 20,108 20,232 Management incentive stock plan 229 316 ----------------------------------------------------- Weighted-average shares for diluted earnings per share 20,337 20,548 ===================================================== Earnings per share - basic $ 0.33 $ 0.27 Earnings per share - diluted $ 0.32 $ 0.27 4 6 Note E--Comprehensive Income Comprehensive income differs from net income due to foreign currency translation adjustments as shown below: Twelve Weeks Ended (First Quarter) March 28, 1998 March 29, 1997 ------------------------- -------------------------- (in thousands) Net income $ 6,609 $ 5,522 Foreign currency translation adjustments (44) (25) ===================================================== Comprehensive income $ 6,565 $ 5,497 ===================================================== ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Revenue for the first quarter of 1998 was $621.7 million, up 5.2% compared to the first quarter of 1997. This increase is the result of a 4.0% increase in tonnage coupled with a 1.2% increase in revenue per ton. Less-than-truckload (LTL) tonnage was up 2.1% and truckload tonnage was up 12.4%, compared to first quarter 1997. Excluding the impact of the Reimer acquisition, daily tonnage levels were flat, and revenue per ton increased 3.9% compared to the same period last year. The operating ratio of 98.3% was flat compared to 1997, due to an increase in operating expenses of 5.3%. Operating costs per ton rose 1.2% compared to the first quarter of 1997. Salaries, wages, and benefit costs rose by 4.8%, primarily due to a 3.8% increase in hourly wage and benefit rates on April 1, 1997, under the terms of the Teamster contract. Purchased transportation costs increased 18.3%, reflecting Reimer's use of owner operators, the Company's increasing use of railroads in certain linehaul operations, and the expanding use of commission agents in the pickup and delivery operations. Operating supplies and expenses were up 8.1% over the prior year quarter due to additional equipment lease expense, terminal supplies, and administrative expenses. These increases were partially offset by lower fuel costs due to declining fuel prices. Depreciation expense continues to decline as more revenue equipment becomes fully depreciated and the Company increases its use of leased equipment. Also, the Company's system count has been reduced to 405 terminals, compared to 415 terminals at the end of the first quarter 1997. The tax expense attributable to the operating income for the first quarters of 1998 and 1997 differs from the Federal statutory rate due to the impact of state taxes, taxes on foreign operations, and non-deductible operating expenses as described in Note C to the Condensed Consolidated Financial Statements. The Company's cash position continues to improve; cash flow from operations is sufficient to meet working capital needs and planned capital expenditures. The Company entered into a third operating lease agreement to replace an additional 3,250 (approximately 10%) of the linehaul trailers during 1998. Under these agreements approximately 6,900 of a planned total of 10,000 trailers have been replaced with leased units through the end of quarter 1, 1998. The portions of narrative set forth in this discussion that are not historical in nature are forward-looking statements. The Company's actual future performance and operating and financial results may differ from those described in the forward-looking statements as a result of a variety of factors that, besides those mentioned, include the condition of the industry and the economy and the success of the Company's operating plans. 5 7 PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders was held on March 25, 1998. Six matters were voted upon at this meeting: (i) the election of seven members to the Board of Directors; (ii) approval of the Equity Ownership Plan; (iii) approval of the Nonemployee Directors' Equity and Deferred Compensation Plan; (iv) approval of the Nonemployee Directors' Stock Option Plan; (v) approval of the Amendment to the 1996 Employee Stock Purchase Plan; and (vi) ratification of the appointment of Ernst & Young LLP as the independent auditors. There were 18,923,660 shares voted and 1,633,054 shares not voted. The following table shows the results of the vote. PROPOSAL FOR AGAINST WITHHELD Election of Directors Frank P. Doyle 18,730,466 193,194 Dale F. Frey 18,714,694 208,966 J. Meek 18,732,073 191,587 Robert E. Mercer 18,688,442 235,218 Carl W. Schafer 18,724,929 198,731 Sarah Roush Werner 18,733,634 190,026 Michael W. Wickham 18,689,623 234,037 Equity Ownership Plan 14,315,687 1,771,477 2,836,496 Nonemployee Directors' Equity and Deferred Compensation Plan 15,167,454 1,048,539 2,707,667 Nonemployee Directors' Stock Option Plan 15,139,872 1,071,514 2,712,274 Amendment to the 1996 Employee Stock Purchase Plan 15,865,649 387,191 2,670,820 Appointment of Ernst & Young LLP as auditors 18,729,563 124,730 69,367 ITEM 5. OTHER INFORMATION On March 25, 1998, the Company's Board of Directors elected Michael W. Wickham to serve as Chairman of the Board of Directors and Chief Executive Officer for Roadway Express. The Board also elected James D. Staley to succeed Wickham as President, and designated Staley Chief Operating Officer (COO). J. Dawson Cunningham was elected Executive Vice President, Chief Financial Officer (CFO) and Treasurer. John D. Bronneck was elected to replace Staley as the Company's Vice President - Operations. Terry M. Gilbert was elected Vice President - Northeast Division to succeed Bronneck. Wickham succeeded Robert E. Mercer as Chairman, who remains a member of the Board. On April 8, 1998, the Motor Freight Carriers Association ("MFCA") announced that the membership of the International Brotherhood of Teamsters (the "Teamsters") had ratified a new, five-year National Master Freight Agreement (the "Contract"). The MFCA represents Roadway Express and five other union carriers. Negotiations are continuing in supplemental contracts that affect a small portion of the Company's Teamster employees. Management believes that it is more likely than not that these supplemental contracts will be settled in a favorable manner in the near future, and will not cause a disruption of service. On April 15, 1998, the Board of Directors announced a cash dividend of $0.05 per share on the Company's common stock payable on June 1, 1998, to shareholders of record on May 15, 1998. 6 8 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit No. - ----------- 27 Financial Data Schedule. List of the Current Reports on Form 8-K that were filed during the current quarter - none. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROADWAY EXPRESS, INC. Date: May 11, 1998 By: /s/ J. Dawson Cunningham ------------ --------------------------- J. Dawson Cunningham, Executive Vice President, Chief Financial Officer and Treasurer Date: May 11, 1998 By: /s/ John G. Coleman ------------ ---------------------- John G. Coleman, Controller 7